Oracle Promises a Fight

The DOJ and seven states look to block Oracle's PeopleSoft buyout.

Oracle Corp. is challenging a civil suit to be lodged by the U.S. Department of Justice and seven states that seeks to block the companys bid for enterprise software developer PeopleSoft Inc. However, many observers say the company should simply look elsewhere to grow its applications business.

The DOJ announced late last week that it will seek to block Oracles $9.4 billion planned buyout of PeopleSoft on grounds that it is anti-competitive.

"If allowed to go forward, major business and government agencies that depend on human resources and financial software would pay higher prices, have fewer choices and less innovation," said Assistant Attorney General R. Hewitt Pate during a teleconference at DOJ headquarters, in Washington. "Oracle and PeopleSoft and only one other company [SAP AG] provide services that I mentioned. Under any analysis, this is an anti-competitive deal.

"We think its simple common sense that this merger would be bad for competition. To try and say otherwise would be to take something simple and try and turn it into something complicated," Pate said.

Attorneys general from seven states—Texas, Hawaii, Maryland, Massachusetts, Minnesota, New York and North Dakota—said they would join the DOJ suit shortly after the department announced its intentions.

Oracle charged that the DOJ has been unduly affected by PeopleSofts lobbying efforts and that Pates decision was not based in fact or law.

Some legal experts said the DOJ faces a difficult uphill climb. "Technology has opened up a new frontier of antitrust," said Hillard Sterling, an antitrust attorney with Much Shelist Freed Denenberg Ament & Rubenstein P.C., in Chicago. "Its much more difficult to challenge [deals like this] and show competitive problems in these technology markets. This is nowhere near a slam-dunk for the DOJ. ... The Microsoft [Corp. antitrust case] should have taught the government a lesson. Its not easy to show antitrust violations in these very competitive markets." Oracle could find a compromise with the DOJ without going to court, lawyers said.

Oracle, of Redwood Shores, Calif., had hoped to put a slate of pro-Oracle candidates on PeopleSofts board at PeopleSofts March 25 shareholders meeting. That would have enabled it to remove a poison-pill bylaw that also impedes the hostile takeover. But Oracle withdrew its nominees and extended its tender offer for PeopleSoft shares until June 25 because, officials said, its legal battle with regulators will not be completed by March 25.

Should the DOJs decision stand, Oracle customer Peter Smith said he believes Oracle will be forced to go hunting for other prey to boost its applications arsenal. "I think Oracle needs to expand that portion of their business, and the major way to do it is through an acquisition," said Smith, president of the Ottawa Oracle User Group, in Ottawa. "Oracle needs to diversify more beyond the database and beyond its current Oracle financial applications offering. They need to grow their business [in ways] that the database engine cannot do at this time."

The DOJs decision could spare Oracle and its CEO, Larry Ellison, from the embarrassment of falling short in the companys pricey and exhausting bid to acquire PeopleSoft, Smith said. "[The decision] provides them with a way of saving face and walking away from a deal thats been plaguing them for a year—and gives them an easy way to get out of chasing PeopleSoft," he said.

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